Dollar Extends Decline Despite Stronger Retail Sales

The U.S. dollar continued to weaken on Tuesday, with the dollar index falling around 0.6% as markets priced in a likely interest rate cut by the Federal Reserve. Investors are largely expecting a 25-basis-point reduction at the current policy meeting, though there remains a smaller chance of a larger 50-basis-point move.

Projections suggest the Fed could trim rates by a total of 70 basis points before the end of the year, bringing the federal funds rate down to about 3.63% from the current 4.33%. These expectations of sustained monetary easing are weighing heavily on the greenback.

Stronger U.S. retail sales data provided little relief for the currency. Headline retail sales rose 0.6% in August, beating forecasts of 0.2%, while core sales excluding autos climbed 0.7%, also above the prior month’s 0.4%. The figures highlight resilient consumer spending, yet they failed to offset market focus on the Fed’s policy path.

Adding to the pressure are political concerns surrounding the central bank’s independence. Reports of potential changes within the Federal Reserve’s leadership and tensions over its autonomy have unsettled foreign investors. Such uncertainty may prompt global funds to scale back holdings of dollar-denominated assets, amplifying downside risks for the U.S. currency in the near term.